Governor warns of deficits as California tax campaign begins

SACRAMENTO, Calif. – California Gov. Jerry Brown on Friday raised the spectre of steep budget deficits if his voter-approved, temporary tax increases on the wealthy are allowed to expire — a warning that added political overtones to his proposed $122.2 billion state budget.

Brown used the release of his spending plan to warn of a $4 billion budget shortfall by 2019, when the tax increases fully expire.

The Democratic governor refused to take a position on extending the tax hikes, but he warned that without the added revenue, “we will have cuts, no question about that.”

Brown regularly cautions about the perils of a looming recession, but his warning about steep deficits tied to the expiring taxes was unusual and came as union groups ramp up a campaign to retain the higher levies.

The budget packet provided to reporters was nearly identical to one distributed in January but contained a new graph depicting growing deficits in the years ahead.

“It seemed to be an implicit endorsement” of the tax extension, said Jon Coupal, president of the Howard Jarvis Taxpayers Association, which opposes continuing the Proposition 30 increases passed in 2012.

Brown’s “wink and nod” was ironic in the face of his complaints about the volatility in California’s revenue due to reliance on wealthy taxpayers, Coupal said.

Left-leaning interest groups quickly pounced on Brown’s warning to make their case for maintaining the higher taxes.

“California students, schools and colleges can’t afford to go back to the days of teacher layoffs, larger class sizes, and cuts to programs,” Jennifer Wonnacott, a spokeswoman for the campaign supporting the tax extension, said in a statement.

Proposition 30 raised tax rates for incomes above $250,000 by one to three percentage points through 2019.

Supporters announced Wednesday that they’re turning in nearly 1 million signatures in support of asking voters in November to retain the income tax hikes for an additional 12 years.

A temporary quarter-cent sales tax increase would expire as scheduled at the end of this year.

Brown’s spending plan for the 2016-17 fiscal year was down slightly from his January proposal after he projected tax revenues falling $1.9 billion below earlier expectations because of stock market fluctuations.

By law, about half the state’s spending goes to K-12 education and higher education. Brown’s budget plan also calls for adding $2 billion more than required to the state’s rainy day fund to prepare for the next recession.

“The surging tide of revenue is beginning to turn, as it always does,” he said. “That’s why it’s prudent and best that we prepare for a time of necessity.”

In recent months, Brown has approved raising the minimum wage to $15 an hour and signalled he was open to liberal priorities. But his budget proposal left fellow Democrats mostly disappointed as he continued to favour savings, debt payments and deferred maintenance over increases to social service programs.

“Given the unacceptably high number of Californians living in poverty, we must make targeted reinvestments in education, health and social service programs that help lift up the most vulnerable residents of our state,” said Sen. Mark Leno, D-San Francisco, chairman of the Senate budget committee.

The governor did embrace a demand from Senate Democrats to divert $2 billion in voter-approved mental health funding for housing for the homeless, a growing problem in California. Brown noted it had a dedicated funding source outside the general fund.

Republican leaders generally backed the governor in his call for fiscal restraint, asserting that new spending should be reserved for one-time critical needs such as water, school and transportation infrastructure.

“This is the largest budget, the largest spending we’ve had ever, so this is the time to make everything work well that we have,” said Senate Minority Leader Jean Fuller, R-Bakersfield.

Friday’s release opens up a monthlong debate with lawmakers, who will have until June 15 to hash out their own version of the spending plan and send it to the governor. Brown said it will be difficult to push back against lawmakers clamouring for more money but he intends to stand firm.

Democrats want $800 million to increase rates paid to subsidized daycare providers and to provide care to more children. They’re also looking to eliminate a condition in CalWorks that prevents families from getting additional welfare benefits if they have another child while receiving state assistance.

Brown has also called for tax and fee increases to begin paying for a $59 billion backlog in road repairs.


AP writer Alison Noon contributed to this report.